AFM123 Chapter Notes - Chapter 2: Income Statement, Opportunity Cost, Financial Statement

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peachgerbil481

27 Mar 2016

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM123

Professor

Peter Blake

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Document Summary

Managers will not be able to estimate, analyze, and report if they do not have a good understanding of costs: cost classiication enables a manager to better understand costs. Cost behavior the way a cost will respond to changes in the level of an organization"s business activities. Classifying costs as ixed or variable helps managers make decisions. One that varies in direct proportion to changes in the level of activity: can be expressed as, output, miles driven, beds occupied, etc. Important to note variable costs refer to total variable costs. One that remains constant (unchanged) regardless of change in the level of activity. Fixed within some relevant range: relevant range is the range of activity within which the assumptions about variable and ixed costs are valid. Managers also need to know whether costs can be traced to speciic cost objects: cost objects anything for which cost data are desired.

Related Questions

Why is it important to identify the most appropriate costdrivers for a particular product?

A) so managers can identify the activities necessary tomanufacture a product

B) so managers can control product costs better

C) so managers can predict product costs better and make betterdecisions

D) B and C

Answer:

Cost drivers are ________.

A) the different functions in the value chain

B) different types of functional areas in the firm

C) measures of activities that require the use of resources andthereby cause costs

D) different types of cost calculations

Answer:

Within the relevant range, the total amount of ________ costchanges in direct proportion to changes in the cost driver. Withinthe relevant range, the total amount of ________ cost does notchange in direct proportion to changes in the cost driver.

A) fixed; variable

B) variable; fixed

C) step; mixed

D) mixed; step

Answer:

What happens when the cost-driver level increases within therelevant range?

A) Total fixed costs remain unchanged.

B) Fixed costs per unit of cost driver increase.

C) Total variable costs decrease.

D) Variable costs per unit of cost driver increase.

Answer:

Which of the following costs is a fixed cost?

A) cost of dairy ingredients used to produce ice cream

B) depreciation expense on factory building

C) fuel used by delivery trucks

D) labor wages of workers who mix dairy ingredients to make icecream

goldalligator726

Match the items in the two columns below by entering theappropriate code letter in the space provided.

The amount of revenue remaining after deducting variablecosts.
Costs that contain both a variable and a fixed element.
The percentage of sales dollars available to cover fixed costsand produce income.
Identifies the activity which causes changes in the behavior ofcosts.
The difference between actual or expected sales and sales atthe break-even point.
Costs that vary in total directly and proportionately withchanges in the activity level.
The level of activity at which total revenues equal totalcosts.
The range over which the company expects to operate during theyear.
Costs that remain the same in total regardless of changes inthe activity level.
A costing approach in which all manufacturing costs are chargedto the product.
A method that uses the total costs incurred at the high and lowlevels of activity.
A costing approach in which only variable manufacturing costsare product costs and fixed manufacturing costs are period costs(expenses).

1.	Activity index
2.	Variable costs
3.	Fixed costs
4.	High-low method
5.	Relevant range
6.	Mixed costs
7.	Break-even point
8.	Contribution margin
9.	Variable costing
10.	Absorption costing

orangetermite875

Match the items in the two columns below by entering theappropriate code letter in the space provided.

The amount of revenue remaining after deducting variablecosts.
Costs that contain both a variable and a fixed element.
The percentage of sales dollars available to cover fixed costsand produce income.
Identifies the activity which causes changes in the behavior ofcosts.
The difference between actual or expected sales and sales atthe break-even point.
Costs that vary in total directly and proportionately withchanges in the activity level.
The level of activity at which total revenues equal totalcosts.
The range over which the company expects to operate during theyear.
Costs that remain the same in total regardless of changes inthe activity level.
A costing approach in which all manufacturing costs are chargedto the product.
A method that uses the total costs incurred at the high and lowlevels of activity.
A costing approach in which only variable manufacturing costsare product costs and fixed manufacturing costs are period costs(expenses).

1.	Activity index
2.	Variable costs
3.	Fixed costs
4.	High-low method
5.	Relevant range
6.	Mixed costs
7.	Break-even point
8.	Contribution margin
9.	Margin of safety
10.	Contribution margin ratio
11.	Variable costing
12.	Absorption costing

lavenderjackal968

AFM123 Chapter Notes - Chapter 2: Income Statement, Opportunity Cost, Financial Statement

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